Commercial Building ROI Calculator
Calculate the total return on investment for a commercial building, factoring in rental income, operating expenses, financing costs, and property appreciation.
Purchase & Financing
Income
Operating Expenses (Annual)
Appreciation & Hold Period
Formulas Used
Effective Gross Income (EGI):
EGI = Gross Rent × (1 − Vacancy Rate) + Other Income
Net Operating Income (NOI):
NOI = EGI − Total Operating Expenses
Monthly Mortgage Payment:
M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
where P = loan principal, r = monthly interest rate, n = total monthly payments
Annual Cash Flow:
Cash Flow = NOI − Annual Debt Service
Cap Rate:
Cap Rate = NOI / Purchase Price × 100
Cash-on-Cash Return:
CoC = Annual Cash Flow / Total Initial Investment × 100
Gross Rent Multiplier (GRM):
GRM = Purchase Price / Gross Annual Rent
Debt Service Coverage Ratio (DSCR):
DSCR = NOI / Annual Debt Service
Break-Even Occupancy:
BEO = (Operating Expenses + Debt Service) / Gross Rent × 100
Future Property Value:
FV = Purchase Price × (1 + Appreciation Rate)^Hold Period
Remaining Loan Balance:
B = P × [(1+r)ⁿ − (1+r)ᵖ] / [(1+r)ⁿ − 1]
where p = payments made at time of sale
Total ROI:
Total ROI = (Total Cash Flow + Equity Gain) / Total Initial Investment × 100
Annualized ROI:
Annualized ROI = [(Total Return / Initial Investment)^(1/Years) − 1] × 100
Assumptions & References
- Mortgage uses a standard amortizing fixed-rate loan formula (CFPB guidelines).
- Cash flow is assumed constant over the hold period (no rent escalation modeled).
- Property management fee is calculated on Effective Gross Income.
- Selling costs typically include broker commissions (4–6%) and transfer taxes.
- A DSCR ≥ 1.25 is generally required by commercial lenders (FDIC commercial lending standards).
- Cap rates for commercial properties typically range 4–10% depending on asset class and market (CBRE, JLL market reports).
- Break-even occupancy below 85% is generally considered healthy for commercial assets.
- Depreciation, income tax effects, and capital expenditure reserves are not included; consult a CPA for tax-adjusted returns.
- Appreciation rate is applied as compound annual growth (CAGR model).